Lagarde: Don't Underestimate Italy

At a dinner for delegates to the Women in the World Summit in New York City on Thursday night, International Monetary Fund Managing Director Christine Lagarde singled out one man as a beacon of hope in the bleak global economy. Since the technocrat Mario Monti replaced the infamously irresponsible Italian Prime Minister Silvio Berlusconi in November, Italy is no longer the most disastrous problem facing the European economy, she said. The trust of investors is being restored and “it could well be that Italy is going to be the light of the European tunnel,” said Lagarde. “I would not short Italy, at all.”

But, more generally, men in the old boys’ club of finance did not rate such praise from Lagarde. Sparring amicably with economic historian Niall Ferguson, who was pushing the idea that the male propensity for risk taking is good because risk is what brings big rewards, Lagarde said “if Lehman Brothers had been a bit more Lehman Sisters ... we would not have had the degree of tragedy that we had as a result of what happened.” The great financial firm collapsed under an avalanche of bad debts based on bad bets in 2008, precipitating the global crisis.

Lagarde, her shock of white hair and her white satin blouse resplendent in the spotlight, noted that “the degree of risk taking among women is significantly lower” than among men. She suggested that in the corporate world “that balance that is provided by sensible women should be compensated and should be valued,” not just the macho gambles of men, which sometimes earn bonuses for the gamblers even when they don’t pay off for investors.

Lagarde added that women are adept crisis managers, and not the least of the reasons that Europe is muddling toward a more stable economic future now is that German Chancellor Angela Merkel has “used the crisis” to achieve a degree of “concentration and cohesion” in Europe and the euro zone that seemed impossible only a few months ago. “These changes are taking place because of the pressure that was put on the euro members,” said Lagarde.

Ferguson noted early on in the conversation that the Greek debt swap with private creditors agreed upon Thursday has been reported as a resounding success. The deal is seen as vital not only to salvage Greece’s precarious finances, but to keep the Greek crisis from afflicting much of the rest of the European and global economy. “Reassure me, Christine,” said Ferguson, “tell me the financial crisis is over.”

“We are not out of the danger zone,” said Lagarde, “but we have avoided the worst.”

Ferguson said that the United States, which is the biggest contributor to the IMF, would ultimately bear a big part of the cost for any European bailout in which the IMF participated. Lagarde, who is trying to organize a trillion-dollar firewall against speculative attacks on European finances, noted that “each and every member [of the Fund] has an interest in stability around the world.” Since the founding of the organization after World War II, that role has been understood, but rarely has it been so important. The IMF is seen as the “neutral player,” the “honest broker” looking for solutions to crises, said Lagarde, and the stabilization of Europe’s economy now under way would have been

Ferguson ended the session by suggesting France would be better off as well if Lagarde were a candidate for the presidential elections there next month, which turned out to be a major applause line. But he ended the session before Lagarde had to answer about her future ambitions. Her term at the IMF is due to end in July 2016, which would be just in time for her to run in France’s next presidential elections.